AUD 7 : Compilations And Reviews - SSARS

Question 1

What are the 4 types of Engagements a CPA may be associated with in regards to Financial Statements?

Answer 1

1. Accountant may be engaged to audit FS.
   
   • Non-public Audit - accountant will follow GAAS in the form of the clarified Statements on Auditing Standards (SAS) issued by the ASB of the AICPA.
   • Public Audit - accountant will follow requirements by the PCAOB.
2. Accountant may be engaged to review the FS.
   
   • Accountant will follow Statements on Standards for Accounting & Review Services (SSARS) issued by the Accounting & Review Services Committee (ARSC) of the AICPA.
3. Accountant may be engaged to complie the FS.
   
   • Accountant will also follow SSARS
4. Accountant may be engaged to prepare FS.
   
   • Accountant will also follow SSARS

Question 2

Statements on Standards for Accounting & Review Services (SSARS)

Answer 2

SSARS - Accounting standards issued by the Accounting & Review Services Committee (ARSC) of the AICPA that apply to engagements (Prep of F/S, Compilations, Reviews) in which a CPA is associated with the unaudited financial statements of nonissuer clients.

NOTE: SSARS is like GAAS

Question 3

Attest Engagement

vs.

Assurance Engagements

Answer 3

Attest Engagement - is an assurance engagement that requires an accountant to be independent.

• Examples: Audit, Reviews, or Compilations

Assurance engagements - is an engagement in which the accountant is required to verify the accuracy or completeness of the information provided by mgmt or otherwise gather evidence that will serve as a basis for a report in which the accountant expresses an opinion or a conclusion on the information.

Question 4

What are the three engagements covered by SSARS?

Answer 4

1. Review
   
   • Attest (Independent)
   • Limited Assurance (Inquiry & Analytical Procedures)
2. Compilation
   
   • Attest
   • Non-Attest if specifically disclosed (req’d)
   • Limited Assurance
3. FS Preparation
   
   • Non-Attest
   • Non Assurance

Question 5

What are the five basic elements for an Engagement Letter under an SSARS engagement?

Answer 5

Listed in Engagement Letter are the following:

1. Objective of engagement
2. Mgmt Responsibility
   
   • Prep & Fair presentation of FS (AR-C 60)
3. Acct’s Responsibility
   
   • “to Comply w/ SSARS”
4. Limitations of the Engagement (must be stated)
5. I.D. the AFRF (must be stated)

Question 6

Preparation of F/S

(AR-C 70)

[Letter Req,OBJ,Req’s/Prcdrs,Eng’mt Type,Acct Stds,Reports]

Answer 6

Letter Requirement: Signed Engagement Letter

• Both Client & Accountant

OBJ: Prepare FS in accordance with AFRF

Requirements & Procedures:

• Understanding of financial reporting framework & significant accounting policies.
• NOT required to be Independent

Engagement Type: Non-Attest Engamement

• NO Assurance
• NO Opinion

Acct Standards: SSARS, by ARSC of AICPA

Documents in a FS Prep: NO Report; ONLY FS are provided

• FS must state: “No Assurance is Provided“
  
  • If client REFUSE:
    
    • Upgrade to a Compilation or
    • Issue a Disclaimer

Question 7

Complilation

(AR-C 80)

[Letter Req,OBJ,Req’s/Prcdrs,Eng’mt Type,Acct Stds,Reports,Docs]

Answer 7

Letter Requirement: Signed Engagement Letter

• both by the Client & Accountant

OBJ: Apply accounting & financial reporting expertise to assist mgmt in the presentation of FS & report in accordance w/ AR-C 80 without giving any assurance; No material modification made to be in accordance w/ AFRF.

Requirements & Procedures:

• Understanding of financial reporting framework & significant accounting policies.
• Read the FS - See if it is free of obvious material misstatements & in accordance with AFRF.
  
  • Compare PY FS to CY FS
• If NOT Independent, add a sentence/paragraph (must be disclosed)

Engagement Type: Attest Engamement (unless disclosed)

• NO Assurance
• NO Opinion (Disclaimer)

Acct Standards: SSARS, by ARSC of AICPA

Reports: 1 Paragraph Required, (CARD)

• Compiled Statements - Must be identified
• AICPA Standards - Compilation in accord w/ SSARS
• Responsibility of Mgmt - Emphasize that these FS are of management
• Disclaim Opinion or Assurance - Explicitly state that the FS are not audited or reviewed & disclaim that there is NO opinion or assurance

Documents in a Compiled Engagement:

• The Engagment Letter
• The Financial Statements
• The Accountant’s Compilation Report

Question 8

Compilation Report - 1 Paragraph

CARD

Answer 8

Reports: 1 Paragraph Required, (CARD)

• Compiled Statements - Must be identified (BS/IS/CF)
• AICPA Standards - Compilation in accord w/ SSARS
• Responsibility of Mgmt - Emphasize that these FS are of management
• Disclaim NO Opinion or NO Assurance - Explicitly state that the FS are NOT Audited or NOT Reviewed & disclaim that there is NO opinion or assurance.

Question 9

What are 7 scenarios where an Additional Explanatory Paragraph is required for a Compilation?

(Think Emphasis-of-matter or Other-matter paragraph)

Answer 9

Modifications: add additional Explanatory Paragraph

1. Comparative Reports (PY Reviewed, CY Compiled)
2. Use of Special Purpose Framework
3. Lack of Independence (may include reasons)
4. Inadequate Disclosures
   
   • A Limited Use Paragraph must be added which includes “Not designed for those who are not informed about such matters”
5. Departures from AFRF (non-GAAP)
6. Supplementary Info included in the report or RSI
   
   • Required Supplementary Information (RSI) is present
7. Additional Explanatory Paragraph
   
   • Going concern doubt
   • Material subsequent event
   • Change in Principles/Estimate

Question 10

Review

(AR-C 90)

(I-CORRIIA)

[Letter Req,OBJ,Req’s/Prcdrs,Eng’mt Type,Acct Stds,Reports,Docs]

Answer 10

Letters Required: (POSSIBLE EXAM QUESTION)

• Engagement Letter (Signed both by client/acctnt)
• Mgmt Representation Letter (Written)

OBJ: Obtain limited assurance as a basis for reporting whether the accountant is aware of any material modifications that should be made to the FS for them to be in accordance with the AFRF, primarily through the performance of Inquiry & Analytical Procedures.

Requirements & Procedures:

• Understanding of financial reporting framework & significant accounting policies.
• Industry & Entity knowledge
• _I_nquries & _A_nalytical Procedures
• MUST be Independent

Engagement Type: Attest Engamement

• Obtain Limited Assurance
  
  • By performing Inquiry & Analytical Procedures
• Give NO Opinion (Disclaimer)
  
  • Only Report (limited assurance) or Withdraw

Acct Standards: SSARS, by ARSC of AICPA

Reports: Req’d 4 Paragraph Review Report

• Intro
• Mgmt Responsibility
  
  • Prep & Fair Presentation
  • DIM of Internal Control
• Acct’s Resonsibility
• Accountant’s Conclusion - Limited Assurance

Documents in a Compiled Engagement:

• Engagment Letter
• Mgmt Representation Letter
• Financial Statements
• The Accountant’s Review Report

Question 11

Under a Review engagement, a 4 Paragraph Report is required which consist of?

Answer 11

Under a Review, a 4 Paragraph Report is required:

• A title with the word “Independent”
• An appropriate Addressee
• 1.) Introduction
  
  • Identify the FS Reviewed
  • Explicitly state the FS were Reviewed
  • Indicate that the review consists primarily of Analytical Procedures & Inquiries
  • States that a Review is LESS in scope than an Audit (Disclaimer)
• 2.) Mgmt Responsibility
  
  • Prep & Fair Presentation of FS (AR-C 60)
  • DIM of Internal Control
• 3.) Acct’s Resonsibility
  
  • SSARS compliance
  • Perform Analytical Procedures & Inquiries to provide limited assurance
  • Believes that the review evidence is sufficient to corroborate mgmt’s assertions
• 4.) Accountant’s Conclusion - Limited Assurance
  
  • “Based our review, we are not aware of any material modifications that should be made to the accompanying FS in order for them to be in accordance with GAAP in the US.”
• Accountant’s Signature
• City & State
• Date of the Report

Question 12

What are some scenarios where an additional 5th Paragraph is required under a Review Engagement?

(Think Emphais-of-Matter or Other-Matter Paragraph)

Answer 12

Modifications: Add Emphasis or Other-Matter Paragraph

• Comparative Reports (PY Reviewed, CY Compiled)
• Use of Special Purpose Framework
• Inadequate Disclosures
  
  • A Limited Use Paragraph = must state “Not designed for those who are not informed about such matters”
• Departures from AFRF (non-GAAP)
• Supplementary Info or RSI included in the report
• Emphasize a Matter
  
  • Going concern doubt
  • Material subsequent event
  • Change in Principles/Estimate

Question 13

Downgrading an Engagement

Answer 13

Occasionally, a client will request that an audit engagement be downgraded to a review or compliation (or review to compilation). In such circumstances, the accountant should consider:

• The Reasons offered by the client for the downgrade
• The Additional Effort & Additional Cost

NOTE: If the accountant agrees to downgrade, it is important that the report resulting from such engagement make NO reference to the original engagements or state the reasons for the downgrade.

Question 14

Review of Interim Financial Statements

(10Q PCAOB)

Answer 14

Same rules apply to a non-public review, just under PCAOB standards.